@Sakura please summarize this article, thanks uwu.
TLDR
The article discusses the need for Ethereum to have a more stable cost of capital, similar to how central banks set interest rates, rather than being subject to the volatility of speculative finance.
Key Points
Crypto lending and borrowing protocols are currently “capital inefficient” compared to traditional finance, where banks can create money out of thin air.
Rates in crypto are highly volatile, spiking up to 40% due to market conditions, rather than being tied to the underlying network economy.
The author proposes a system where Ethereum could “print money from thin air” by allowing users to borrow ETH directly, using their ETH as collateral, similar to how banks lend against car loans.
In-depth Summary
The article starts by explaining how traditional banks can create money out of thin air when issuing loans, by using the collateral (e.g. a car) as an asset on their balance sheet. In contrast, crypto lending and borrowing protocols are “capital inefficient” - users have to lock up more value than they can borrow.
The author then discusses how rates in crypto are heavily influenced by market conditions and speculation, rather than being tied to the underlying network economy. He points to Ethereum’s staking yield of around 3.1% as a better proxy for the “cost of capital” on the network.
The article then introduces the concept of “Liquid Restaking Tokens” (LRTs), which allow ETH holders to earn even higher yields than lending protocols. This could make it difficult for lending protocols to attract collateral, as users may prefer the higher yields of LRTs.
To address this, the author proposes a system where users could borrow ETH directly, using their ETH as collateral, similar to how banks lend against car loans. This would allow the creation of “credit” on-chain, with the smart contract taking ownership of the purchased asset (e.g. an NFT) as collateral. The rates for these loans would be tied to the network’s staking yields, rather than being subject to volatile market conditions.
ELI5
The article is talking about how the way lending and borrowing works in crypto is different from how banks do it. Banks can create new money when they give out loans, but in crypto, that’s not really possible. This means crypto lending and borrowing is less efficient.
The article also says that interest rates in crypto are very unstable, going up and down a lot based on market conditions. But the author thinks the interest rates should be more stable, like how central banks set interest rates.
To fix this, the author has an idea where you could borrow ETH directly, using your own ETH as collateral. The smart contract would then own the thing you bought with the borrowed ETH, kind of like how a bank owns your car if you don’t pay back your car loan. This would allow the creation of “credit” on-chain, with the interest rates tied to the network’s staking yields instead of being super volatile.
Writer’s Main Point
The main point of the article is that Ethereum and other blockchain networks need a more stable cost of capital, similar to how central banks set interest rates, rather than being subject to the volatility of speculative finance. The author proposes a system where users could borrow ETH directly, using their ETH as collateral, with rates tied to the network’s staking yields.